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APRIL 23, 2004
Why Cingular Won't Ditch This Deal [Page 2 of 2] BETTER PRICING. And just as important, BellSouth and SBC will have to solve huge integration issues to make this merger work and to catch Verizon Wireless, which is adding roughly 1.5 million subscribers a quarter. That task is made much harder now that customers are fleeing AT&T Wireless at such an alarming rate. Many analysts, however, believe AT&T Wireless has seen the worst. The mini-stampede was prompted in part by the federal wireless number portability law that took effect last November, which allows cell-phone customers to take their numbers with them when changing carriers. As high-end customers in particular flocked to rivals Verizon Wireless (the current No. 1 mobile carrier) and No. 4 Sprint PCS, (part of Sprint (FON ), AT&T Wireless' churn peaked in January. But the rush petered to a trickle in March, according to AT&T Wireless. Todd Rethemeier, an analyst with Sur Terre Research, still expects the carrier to see net losses of 100,000 subscribers in the second quarter, but then start gaining users in the second half. Rethemeier expects the 2004 customer base to finish essentially flat with 2003's. That assessment might be a bit rosy. A February survey of more than 1,000 business users conducted by tech consultancy In-Stat/MDR revealed that 14% of AT&T Wireless's corporate customers were planning to leave -- nearly twice the defection rate that other carriers are likely to experience. Many businesses fear disruptions and changes in pricing that could come as a result of the merger. TOO HIGH? Still, AT&T Wireless is fighting back. On Apr. 14, it announced an end to roaming charges for most customers -- an offer made possible by agreements with Cingular and recent network improvements. Six months ago, its charges were among the industry's highest, but now its pricing is highly competitive, says Pete Wilson, CEO of consultancy Telwares in Destin, Fla., which helps corporations renegotiate their wireless contracts. Also in April, AT&T Wireless launched a multimillion-dollar ad campaign to promote its network upgrades and quality. Perhaps the worst-case scenario at this point is that Cingular will end up paying too much. Last fall, analyst Rethemeier figured AT&T Wireless stock was worth no more than $7 a share before the deal was announced. And even with the anticipated synergy gains, Cingular should have paid only $10 to $12, vs. the $15 offer, to assemble the combo, Rethemeier estimates. Now, Cingular needs the Justice Dept. and the Federal Communications Commission to approve the merger -- and fast.
 By Olga Kharif in Portland, Ore. Edited by Douglas Harbrecht
BW MALL
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